There are two fundamental principles around which people
can structure their interactions: voluntary agreement, and coercion. In the
world of law, agreement is expressed through contract. Tort takes over where
agreement has failed or not been made.

A tort suit is filed when one feels his rights have been
violated. The role of the court is to determine the rights and responsibilities
existing between the parties to the lawsuit.

For example, I punch you in the nose. There is no doubt
that I caused your injury. You did not agree to my action. Barring some claim
of self-defense, a court is certain to determine that I violated your rights,
and hold me liable for your injury.

Contracts, by contrast, revolve around voluntary
relationships. In exchange for a certain fee, I agree to paint your house. We
might further agree that you will supply the ladders, and I will supply the
paint. But there is no reason that our contract cannot go further, and also
specify who will bear the risk of something going wrong. Most commonly, I may
guarantee, or warrant, my work. I promise that under normal conditions, the
paint job will last at least five years. If the paint turns out to be faulty, I
bear that risk.

We might also agree on the distribution of the risk
resulting from accidents. For example, you warn me that your ladders are old
and rotten, and that if I am concerned about falling I should procure my own
ladders. I agree to use yours, but note that I won’t buy you a new ladder if it
breaks during the painting. I am then injured when the ladder breaks, and sue
you for my damages. You claim, correctly, that I had accepted the risk of
accident. But when you sue me to recover the cost of your broken ladder, I win
on the grounds that you had agreed to bear the cost of that possibility. Even
more likely, having agreed to the distribution of rights and responsibilities
before hand, neither of us go to court.

This voluntary distribution of rights and responsibilities
is fundamental to efforts to manage liability. It allows the manufacturer or
seller of a product to place restrictions on its use, or otherwise avoid
liability. Contract allows both parties to know in advance what risk they are
assuming. Where each side knows in advance both its own obligations and those
of the other party, each party has strong incentive to take proper precaution to
protect its interests. Contractual allocation of risk allows consumers willing
to take risks to gain access to products that a manufacturer might withhold from
the market, for lack of insurance, were it liable for all accidents resulting
from use of the product. Contract – the voluntary distribution of risks before
an accident, when heads are cool – is thus a vital part of the risk management
and predictability needed for insurers to evaluate a risk.

In addition to its attacks on causation, a major effort of
the new tort jurisprudence has been to destroy the voluntary, contractual
distribution of rights and responsibilities regarding the possibility of
accidents.

This assault began in a most innocuous fashion, with the
elimination of a largely dated legal concept called privity.